U.S. for Use of General Elec. Supply Co., a Div. of General Elec. Co. v. U.S. Fidelity & Guar. Co.

• Decision Date: 07 December 1993
• Docket Number: No. 92-5903,92-5903
• Citation: 11 F.3d 577
• Parties: UNITED STATES of America for the Use of GENERAL ELECTRIC SUPPLY COMPANY, A DIVISION OF GENERAL ELECTRIC COMPANY, Plaintiff-Appellee, v. UNITED STATES FIDELITY & GUARANTY COMPANY; E.H. Hughes Company, Inc., Defendants-Appellants, McClain Contracting, Inc., Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 577

11 F.3d 577

UNITED STATES of America for the Use of GENERAL ELECTRIC SUPPLY COMPANY, A DIVISION OF GENERAL ELECTRIC COMPANY, Plaintiff-Appellee, v. UNITED STATES FIDELITY & GUARANTY COMPANY; E.H. Hughes Company, Inc., Defendants-Appellants McClain Contracting, Inc., Defendant.

No. 92-5903.

United States Court of Appeals Sixth Circuit.

Argued Aug. 6, 1993.

Decided Dec. 7, 1993.

Cary K. Smith (argued and briefed), Frankfort, KY, for plaintiff-appellee.

Thomas E. Roma, Jr. (argued and briefed), Landrum & Shouse, Louisville, KY, for defendants-appellants.

Before: MILBURN, RYAN, and BATCHELDER, Circuit Judges.

BATCHELDER, Circuit Judge.

Defendants appeal the district court's granting of summary judgment for the plaintiff in this suit on a surety bond brought under the Miller Act, 40 U.S.C. Sec. 270a. Finding that the district court lacked jurisdiction over the dispute under the Miller Act, we must remand to the district court to determine whether it has jurisdiction under 28 U.S.C. Sec. 1252 or any other federal statute, and, if it does, to reexamine the issues in light of that alternative jurisdictional basis.

I.

On May 11, 1988, the E.H. Hughes Co. (Hughes) entered into a contract with the City of Owenton, Kentucky, to make improvements to the City's wastewater treatment plant. Although federal funding for the project was provided through the Farmers Home Administration (FmHA), the United States was not a party to that contract and did not own the property on which the project was to be constructed. The contract required Hughes to provide a performance bond and a payment bond in the full amount of the contract to secure performance of the work and payment for labor and materials. Hughes supplied the bonds, with United States Fidelity & Guaranty Co. (USF & G) as the surety on the bonds. The bonds named the City of Owenton as the owner, but stated that the bonds ran in favor of both the City and the United States, acting through the FmHA. They also stated that the bonds favored "all persons, firms, and corporations who or which may furnish labor, or who furnish materials to perform as described under the Contract...."

At the same time, Hughes entered into a subcontract with McClain Contracting, Inc. (McClain) to furnish and install the electrical equipment required for performance of Hughes's improvements to the City's plant. McClain contracted with General Electric Supply Co. (General Electric) to provide a motor control center for the project, for a price of $29,500.

A dispute then arose between General Electric and McClain. McClain claims that General Electric failed to deliver shop drawings on time, that the drawings were deficient when they were submitted, that the equipment provided did not meet the specifications, and that General Electric charged additional amounts for parts that were or should have been included in the original equipment. Hughes and McClain claim that the deficiencies in the equipment supplied by General Electric and the late delivery caused them to suffer substantial damages. General Electric claims that McClain never revoked acceptance of the goods or rejected any materials. General Electric charged McClain more than $65,000 for the equipment, rather than the $29,000 price quoted, claiming that this price difference was caused by change orders made by the City's engineer. McClain paid General Electric (with a joint check from Hughes) $16,991.27 toward these invoices. When McClain did not pay the balance, General Electric sent a notice on May 7, 1990, to McClain, Hughes, and USF & G stating that McClain owed it $44,609.08.

In December of 1990, General Electric filed this action against McClain, Hughes, and USF & G, claiming jurisdiction under the Miller Act, 40 U.S.C. Sec. 270a, and alleging that it was owed $47,838.26. Hughes and USF & G filed a motion to dismiss, arguing that the project was not covered by the Miller Act. While that motion was pending, General Electric obtained a default judgment against McClain. On May 3, 1991, the district court denied the motion to dismiss. Hughes and USF & G then filed answers, asserting the defenses of estoppel, failure of consideration, set-off, and payment. Hughes also filed a counterclaim, asserting that it was a third-party beneficiary to the contract between McClain and General Electric, and that Hughes suffered damages because of General Electric's failure to deliver timely and conforming materials.

After discovery, General Electric filed a motion for summary judgment. On December 4, 1991, the district court awarded judgment to General Electric for the full balance claimed, with interest and attorneys' fees. The court also found defendants could not bring a counterclaim against GE under the Miller Act. Hughes and USF & G moved to alter or amend the summary judgment; Hughes moved also to set aside the default judgment against McClain and for leave to file an amended answer and counterclaim, claiming that on December 5, 1991, McClain had executed an assignment to Hughes of all McClain's rights, claims, and causes of action arising from the General Electric contract. On June 4, 1992, the district court set aside the default judgment against McClain, finding that the Miller Act gave it no jurisdiction to entertain the claim against that subcontractor, and denied the motion for leave to file an amended answer and counterclaim as being moot. On June 10, 1992, the district court denied Hughes's and USF & G's Rule 59 motion to alter, amend, or vacate summary judgment and amended its order granting summary judgment to General Electric by increasing the attorneys' fees. Hughes and USF & G now appeal.

II.

We must first address defendants' claim that the district court erred in denying their motion to dismiss for lack of jurisdiction over the action under the Miller Act, 40 U.S.C. Secs. 270a, 270b. Finding that the district court did lack jurisdiction under the Miller Act, we do not reach the remaining assignments of error but remand to the district court to determine whether there is an alternative basis for jurisdiction.

A.

Defendants maintain that the district court lacked jurisdiction under the Miller Act because that Act provides a remedy for persons providing labor and materials under contracts "for the construction, alteration, or repair of any public building or public work of the United States." They claim that the Owenton water treatment plant is not a "public building or public work of the United States" despite the federal funding of the project. Plaintiff General Electric, on the other hand, argues that the district court had jurisdiction over the dispute under the Miller Act because, although the project was owned by the City, the FmHA contributed funding to the project under 7 U.S.C. Sec. 1926(a) and the FmHA required Hughes to obtain performance and payment bonds in favor of the City and the United States acting through the Farmers Home Administration.

We find that the district court lacked subject matter jurisdiction over this case because the Miller Act does not apply to this local waste-water treatment project. The Miller Act states in pertinent part:

Sec. 270a. Bonds of contractors of public buildings or works

(a) Type of bonds required

Before any contract, exceeding $25,000 in amount, for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, which shall become binding upon the award of the contract to such person, who is hereinafter designated as "contractor":

(1) A performance bond with a surety or sureties satisfactory to the officer awarding such contract, and in such amount as he shall deem adequate, for the protection of the United States.

(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of each such person....

40 U.S.C. Sec. 270a(a) (emphasis added). The Act goes on to permit persons furnishing labor and material to sue on the payment bond in federal court. ¹ Thus, a laborer or materialman working on a "public building or public work of the United States" who has not been paid in full can sue in federal court on the payment bond required in section 270a.

The Miller Act was passed to protect subcontractors and materialmen working on federal projects because state law liens may not be asserted against federally-owned property and, therefore, normal state lien remedies are not available in these cases. In addition, the Act seeks to protect the United States from suits concerning payment of subcontractors and suppliers. United States ex rel. Mississippi Road Supply Co. v. H.R. Morgan, Inc., 542 F.2d 262 (5th Cir.1976), modified on reh'g, 554 F.2d 164 (5th Cir.), cert. denied, 434 U.S. 828, 98 S.Ct. 106, 54 L.Ed.2d 86 (1977). The Supreme Court has stated that the Miller Act is "entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects." Clifford F. MacEvoy Co. v. United States, 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163 (1944).

The Act does not define "public building or public work of the United States"; the courts, however, have given some guidance on what that phrase means. The typical "garden variety" Miller Act case is one in which the United States both owns the land and contracts for its improvement. Mississippi Road Supply, 542 F.2d at 265. But courts on occasion, recognizing the purposes of the Act, have extended the Act to other situations in which these elements are not present. See id. (citing to situations where title passes to government after construction completed).

The Supreme Court has addressed the definition of "public work," although in the context of a ...